Make sure you fill in all Yellow cells. Yellow cells left blank will receive zero Problem : Sunshield Company makes three types of sunglasses: Nerds, Stars, and Fashions. Sunshield presently allocates overhead to products using a rate based on di recommended that Sunshield switch to activity-based costing, Management decided to give ABC a try and identified the following activities, cost drivers, and costs for a typic Use this information to compute the overhead rates for each cost driver. 3 Estimated Cost Driver Units 100 200 8000 10000 40 20000 runs orders lbs. machine hours Inspections units 4 Recommended 5 Activity Cost Driver Costs 6 Production setup Production runs $ 30,000 7 Order processing Orders $ 50,000 Materials handling Pounds of materials used $ 20,000 9 Equipment depreciation & Maintenance Machine hours $ 60,000 10 Quality management Inspections $ 50,000 11 Packing & shipping Units shipped $ 40,000 12 Total Overhead $ 250,000 13 In addition, there are 2,500 direct labor-hours in a typical year and direct labor costs are $15 per hour. 15 Assume the following activities occurred in February T6 Nerds Stars Units produced 1,000 500 19 Direct materials costs $ 4,000 $ 2.500 5 20 Direct labor hours 100 100 21 Orders 8 8 2 Production runs 2 4 23 Pounds of materials 400 200 74 Machine hours 500 25 Inspections 2 2 20 Units Shipped 1,000 500 27 Fashions 400 2.000 89 4 8 200 300 2 300 300 Problem E (a) Compute overhead allocation rates (1) for each of the cost drivers recommended by the consultant and [2for direct labor. Estimated Costs Activity Production setup Order processing Material handing Equip deprec & maint Quality mangement Packing and shipping Estimated cost driver runs orders lbs machine hrs Inspections units Activity Rate (predetermined overhead rate) perrun per order per pound (16) per machine hour per inspection per unit Direct labor $ 250,000 DL hours per direct labor hour Bowder 1) Management wants to compare the product costs using Aic and the traditional method for the month of February Compute the production costs for each product for February using direct labor hours as the allocation base. (Note: Production costs are direct materials, direct labor and applied overhead.) (Show calculations in the row below when needed) Nerds Fashions Totals Direct materials $ smule for Direct labor Ofurman Ovethead applied O formulated for you! BERO Speed WHOIS TOTAL COST S he former for you! (c) To derive product costs under Activity Based Costing compute the production costs for each product for February using the cost drivers recommended by the consultant Note: To apply overhead, take the actual units of the cost driver that activity rate for each product. [Show calculations in the row below) Nerds Stars Fashions Totals $ his formale entered for you this formule mtered for Direct materials masino! Direct labores in Part who Overhead applied Production et formulenter for Order processing ore formule med for you! Material handling Amuleted for you! op depret maint Amulerede i l Tin H om med Packing and thipping this form for you TOTAL COST 5 home from (a) Management has seen your numbers and wants to know how you account for the discrepancy between the product costs using direct labore hours as the allocation base to apply werhead versus using activity based costing to apply overhead. Write a brief response to management with your explanation
